VANCOUVER — Serbia has received attention lately as an under-explored jurisdiction for copper porphyry targets, but for junior Avala Resources (TSXV: AVZ) the story is all about gold. To this end, the company has just tabled an encouraging preliminary economic assessment (PEA) for its Timok sediment-hosted gold project that lies 270 km southeast of Belgrade.
Timok sits along the Timok magmatic complex, which is part of the Tethyan orogenic system — an eroded mountain belt that extends from Western Europe to Southeast Asia.
Production over the last century in the Timok area totals 5 million tonnes copper and 6 million oz. gold, mostly from porphyry copper–gold deposits and high-sulphidation style epithermal deposits. Sediment-hosted gold represents previously unrecognized gold mineralization within the region.
Avala’s PEA focuses on Timok’s three main targets — Bigar Hill, Korkan and Kraku Pester — with 99.5% of the resources used in the study falling into the indicated category.
The company also updated the global resource to 67.4 million indicated tonnes grading 1.14 grams gold per tonne for 2.48 million contained oz.
Avala carried out an internal study to determine the optimum throughput for an open-pit operation at Timok, with rates of 5,000 tonnes per day to 10,000 tonnes per day evaluated at gold prices ranging from US$1,250 to US$1,500 per oz.
The company settled on a 5,000-tonne-per-day scenario, which would result in annual production of 81,000 oz. gold over an 8.4-year life, at all-in sustaining costs of US$843 per oz.
Timok would carry a US$177-million development price tag and generate US$128 million in net cash flow over the mine life at US$1,300 per oz. gold. The project would feature a US$65-million net present value (NPV) at a 5% discount rate, along with a 14.3% internal rate of return (IRR).
The company notes that all economic outcomes are the same on a pre-tax and after-tax basis, since the level of investment and employment associated with the proposed mine would qualify for a 10-year tax holiday under current Serbian legislation.
The project is sensitive to gold price and recoveries. Assuming a US$1,400 per oz. gold price, Timok’s NPV jumps to US$110 million, while the IRR rises to 19.8%.
Perhaps more importantly, Avala is modelling a 75% gold recovery under a milling and flotation circuit that would produce a gold concentrate. Boosting recoveries to 81% would yield similarly improve returns, with an NPV of US$111 million and an IRR of 19.9%.
Avala notes that the optimum pit shells in the PEA design are “most sensitive to plant recovery,” and it believes that more metallurgical test work could result in higher overall plant recoveries, which would result in a higher conversion ratio.
Over the past two years Avala’s metallurgical test work focus shifted to assess ultra-fine grinding and flotation to produce a gold-rich sulphide concentrate for downstream treatment. In addition, the potential for upgrading via attritioning and scrubbing (pre-concentration) was evaluated, which was not considered in the PEA design.
Timok is part of a larger, regional land package Avala controls, totalling nine exploration licences over 813 sq. km.
The company’s stock dropped 25% after the PEA news on 731,000 shares traded, before closing at 4.5¢. Avala traded within a 52-week window of 4¢ to 14¢, and had 255 million shares outstanding — with 53.1% held by Dundee Precious Metals (TSX: DPM) — for an $11.5-million market capitalization at press time.
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